Yardi Matrix's Matrix Monthly survey of 121 rental markets has recorded a $4 increase in the average U.S. apartment rent over the past month, up to another all-time high, of $1,217 for July. Rent growth is up 5.5% on a year-over-year basis, and occupancy rates have stabilized, at 96.0%, over the past several months, despite increased supply in many areas.
The report attributes the increased demand for rental units to the trends of “consistent job growth, rising household formations, and the ongoing dip in homeownership” in the markets surveyed.
Even though rents are high, the rate of rental growth slowed in July. Matrix Monthly attributes the slowdown to a recent trend of slower growth in the latter half of the year. The report found that some areas are seeing an increase in supply over demand or have otherwise exceeded the rate renters can afford. (Yardi Matrix expects a delivery of 300,000 new units in 2016, skewed mostly toward high-end renters.)
Lifestyle and Renters by Necessity
Yardi Matrix divides rental assets into two classes, "Lifestyle" and "Renter by Necessity." Lifestyle households “have wealth sufficient to own but have chosen to rent,” according to the report, while the Renter by Necessity class covers a wide range of lower-income families for whom renting is the best or only option. According to Yardi, “These differences can weigh heavily in determining a property’s ability to attract specific renter market segments.”
For its trailing three-month (T-3) rental growth rate charts, Yardi notes that U.S. multifamily rents rose 0.6% on a T-3 basis. The Lifestyle group led, with 0.7% T-3 growth, versus the Renter by Necessity group’s 0.6% growth. Sacramento, Calif., is the leading metro in T-3 rent growth, at 1.3%, owing to a great deal of demand over supply “as people flee from its expensive Bay Area peer markets,” says the report.
On a trailing 12-month (T-12) basis, rents grew by 6.1% overall. Portland, Ore.; Sacramento; and Seattle saw the most gain in this area. The rate of T-12 rent growth for Renter by Necessity properties is currently higher than that for Lifestyle properties in 15 of the 16 metropolitan areas highlighted in the report (the exception being Las Vegas). In most cases, this represents a drastic change from data collected in 2013 and 2014, when Lifestyle growth rates far exceeded those among Renters by Necessity. In many of these cases, Lifestyle and Renter by Necessity rent growth rates have now grown much closer to each other than they were in 2013.
Yardi Matrix attributes this trend to an imbalance between supply and demand. The report states that supply is concentrated in the Lifestyle market, whereas demand for Renter by Necessity assets remains unmet. Renters by Necessity do lead over Lifestyle renters in occupancy rates, however, at 96.1% and 95.9%, respectively. Both categories are near historical highs. As noted above, the occupancy rate has remained stable over recent months, despite the growing supply of new rental properties.
Into the Future
In its forecast for rent growth into the latter half of 2016, Yardi Matrix notes with surprise that rents have grown slightly more in Washington, D.C., (3.6%) than in San Francisco (3.55%) over the past 12 months. According to the report, San Francisco has “seen explosive rent growth in recent years,” a rate “due to slow down.” The city’s current average rent is a whopping $2,400 per month, twice the national average.
The Matrix Monthly also highlights rent growth slowdowns in Denver; Houston; and Austin, Texas, and attributes them to an increase in supply that outstrips demand. The report predicts a flat rate of rent growth for at least the rest of the year in Houston, citing high supply and low energy prices.